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The
IRS announced in an email to tax practitioners that it will
send letters in November and December to return preparers
“suspected of filing inaccurate EITC [earned income tax
credit] claims” (Quick Alerts for Tax Professionals,
Nov. 6, 2013). According to the IRS, the letters will
explain “critical issues identified on the returns,” the
consequences of filing inaccurate EITC claims, and that the
IRS will continue monitoring the types of EITC claims the
preparers file.

The consequences of filing
inaccurate EITC claims include a penalty assessment under
Sec. 6695(g), losing IRS e-file privileges, and other
sanctions that could include barring preparers from tax
return preparation. The IRS will also visit some tax
preparers in person to provide education and outreach on
meeting the EITC due-diligence requirements.

The IRS
has been increasing its emphasis on EITC due diligence in
recent years. The Service estimates that 22% to 26% of all
EITC claims submitted contain some type of mistake, costing
the government between $13.3 and $15.6 billion in 2013.

In 2012, the IRS issued final regulations modifying the
due-diligence requirements on tax return preparers who
prepare tax returns on which taxpayers claim the EITC (T.D.
9570). The earlier rules required preparers to complete Form
8867, Paid Preparer’s Earned Income Credit Checklist,
or to otherwise record the information it required for each
return claiming the EITC and keep it in the preparer’s
records. The new due-diligence rules required tax return
preparers to submit Form 8867 to the IRS.

The IRS has
also issued Publication 4687, on EITC due diligence, in
which it states that “[d]ue diligence is more than a check
mark on a form or clicking through tax preparation
software.” It explains in detail the steps tax preparers
must take to verify the information the client has provided
that is used as the basis for claiming the EITC. The
publication notes that preparers should be especially
careful about the three most common errors in claiming the
EITC: (1) claiming a child who does not meet the age,
relationship, or residency requirements, (2) filing as
single or head of household even though the taxpayer is
married, and (3) reporting income or expenses incorrectly.

The winner of The Tax Adviser’s 2014 Best Article Award is James M. Greenwell, CPA, MST, a senior tax specialist–partnerships with Phillips 66 in Bartlesville, Okla., for his article, “Partnership Capital Account Revaluations: An In-Depth Look at Sec. 704(c) Allocations.”

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